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Connected TV: Bundling strategies and regulatory challenges

Cartagena, Sept 3 2012

C2 – INTERNAL USE


Fastweb A leading broadband operator in Italy, providing nationwide quadruple play services. An groundbreaking and state of the art company that has rolled out - first in Europe - its own full-IP NGN network in 7 major metropolitan areas in Italy Among the first companies to develop IPTV and VOD services in Europe Market leader in innovation and quality

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PG. 2


From “one stop shop” bundling to OTT

Replicating linear bouquet of other platforms did not provide any specific advantage On demand catalogue, exploiting the specificities of broadband, difficult to build because of resistance of traditional players C2 – INTERNAL USE


Chili TV A VOD catalogue available to all households, irrespective of broadband operator used No set-top box necessary: VOD service available via multiple connected devices A free and a premium section including rental and EST.

Users register via Chili web-page creating a personal profile. To access the premium section the user profile has to be connected with a valid Paypal account Subscribers get a code to buy/rent content through up to 5 connected devices (digital lockers paradigm) C2 – INTERNAL USE

PG. 4


A multi-device approach

PC Smart TV Blu-ray player DTT Decoder Android Smartphone/Tablet

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Penetration of Connected TV Connected TV - Italy (in '000) 19.877 20.000

15.376

18.000 16.000

10.876

14.000 12.000

6.376

10.000 8.000

2.626

6.000 626

4.000 2.000 0 FY 2011

FY 2012

FY 2013

FY 2014

(in '000)

TV ‐ sell out connected TV % CONNECTED TV ‐ sell out CONNECTED TV ‐ sell out Cum C2 – INTERNAL USE

FY 2015 FY 2016 Source JFK Monitor 2011

FY 2011

4.819 0,13 626 626

FY 2012

5.000 0,40 2.000 2.626

FY 2013

5.000 0,75 3.750 6.376

FY 2014

5.000 0,90 4.500 10.876

FY 2015

5.000 0,90 4.500 15.376

FY 2016

5.001 0,90 4.501 19.877


Why development of OTT TV matters for policy makers Regulatory and policy efforts to stimulate FTTx roll-out have so far concentrated on the “supply side”: 

Creating incentives, risk-sharing tools and financial instruments to support operators’ capability to invest Allowing regulatory holidays to encourage the incumbent to be the first mover

Lack of demand and little willingness to pay a premium price for UBB services have made this approach largely ineffective.   

people do not perceive the value of UBB connectivity users expect prices to go down and quality to stay constant or increase explosion of online services but lack of premium VOD offers able to trigger a new “pay” paradigm over the internet, generating value and willingness to pay

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Premium content can support a change of paradigm‌ Appetite for online content triggers new usage patterns for connectivity

In countries where premium online content platforms are developing, these generate more IP traffic than peer to peer In the US in peak time 47% of IP traffic generated by VOD and half of it by Netflix alone!

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PG. 8


…as well as revenues for aggregators and right holders NETFLIX: 27 million subscribers Streaming-only business launched in Canada, Latin America and the UK New EU markets to be opened in 2012 NETFLIX subscription growrìth 30.000.000 25.000.000 20.000.000 15.000.000 10.000.000 5.000.000

2012 profits of 83 M$ despite subscription fees decreasing from 12 to 7.99 per month

0 Q3 2009Q4 2009Q1 2010Q2 2010Q4 2010Q4 2011 Q2 "012 Source: Netflix Investor relations

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Why aren’t new OTT distributors emerging in most EU countries?

Most VOD offers in the EU provided by traditional broadcasters as a catch-up proposition C2 – INTERNAL USE


A closer look at the US market Three major business models emerging Transactional (rental and/or EST)

Subscription or advertising based

Users rent/dowload specific content paying a fee for each title

Users can access libraries and catalogues paying a monthly subscription fee or for free (advertising based)

This model has the potential to become the substitute of home video rental

TV everywhere Extension of the traditional cable/satellite subscription Traditional aggregators make premium content available on demand on multiple screens to their subscribers

Only the third category is emerging in most EU countries. Little competitive pressure on traditional TV distributors to accelerate their online distribution plans C2 – INTERNAL USE

PG. 11


Licensing mechanisms designed to advantage traditional platforms The capability of new players to emerge depends from: Availability: need to be able to aggregate complete catalogues, exploiting the low distribution costs and turn the “long tail” into a business proposition

Exclusive deals for VOD distribution signed by traditional aggregators prevents new players from putting together complete catalogues

Time to market: make content available when demand and willingness to pay are higher

Windowing system still conceived to advantage traditional distribution. Current movies made available for VOD 3 months after home video

Flexibility: allow capability to experiment different models and formulas so to cater to different needs and consumer’s segments

Rigidity in standard contracts associated with long terms prevents experimentation in a developing phase

Lack of credible alternative pushes rightholders to stick with what they know, but with the existing criteria credible alternatives will hardly emerge C2 – INTERNAL USE

PG. 12


Regulatory issues: size does matter! Lack of a digital single market, as well as linguistic/cultural fragmentation, is the issue. Despite the «single market» Europe is artificially fragmented: rights for VOD are sold on a «per country» basis, with a «territorial exclusivity clause»: users in each country can only access VOD offers developed for that country. VOD operators cannot benefit from EU-wide distribution: they need to strike a licensing deal for each country and then with each collecting society… Territorial exclusivity is preventing the creation of scale. An easy way out: allowing passive sales outside the «country of origin»…

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Regulatory issues: get the cloud right Huge uncertainties regarding the regime applicable to cloud services for audiovisual content Based on the «private copy» exception users can make/store a copy on local storage without a licence The same does not apply if the copy is stored on the cloud!!! Platforms based on «re-licensing» content you already own can develop (I-Tunes match) whereas platforms based on storing your content on the cloud and playing it back from any device (Amazon cloud player) cannot develop.

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Regulatory issues: is the current regime discouraging dematerialization? With its AVMS the EU Commission introduced a regulatory framework for non linear media which is to all extent regulated as linear broadcasting. Although apparently creating a «level playing field» between old and new media, AVMS has created a paradox:  selling/renting physical DVD online falls under the e-commerce category (hence no regulation)  selling/renting electronic copies is a «media service» and regulated Is this consistent with policies aimed at fostering the digital economy?

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Regulatory issues: VAT system doesn’t recognise digital products as “cultural products” 

Whereas books, newspapers and other “information goods” are subject to a reduced VAT rate in light of their status as cultural products, the corresponding digital version are subject to full VAT! Buying a physical book in subject to a 3-6% VAT in most EU countries, buying an e-book can be subject to up to 25% VAT

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PG. 16

Empaquetamiento de servicios: estrategias de mercado  

Lisa di Feliciantonio, Head of Regulatory Policy & EU Affairs, Fastweb